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How You Can Profit from Trump’s Energy Deregulation Agenda

1 | By Shah Gilani

The incoming Trump administration is widely expected to upend a lot of energy regulations put into place by President Obama, as well as rules that have been in place for decades.

Investors have already bid up energy stocks in anticipation of regulatory rollbacks.

But some of those bets look premature now that we see not all of President-elect Trump’s cabinet nominees are on the same page when it comes to the environment and climate change – two issues, however you look at them, driving U.S. energy policy.

Today, I’ll tell you how principal cabinet nominees generally look at the issues, and why U.S. energy and environmental policies can’t be effected in a vacuum.

Then, I’ll show you where the safe investments really are…

Trump’s Deregulation Agenda

Besides threatening President Obama’s executive orders implementing energy, environmental, and climate change regulations, the Trump administration is going to have to look at decades-old rules and regulations affecting the environment and energy.

One old set of rules, The Clean Air Act Amendments (1990), implemented to address acid rain, urban air pollution, and toxic air emissions, required retrofits for power plants and imposed other costs on energy generation polluters.

More recently, the Clean Power Plan (CPP), which establishes CO2 emission performance rates for power plants to address global climate change, is hugely contentious, for one reason: at present there’s no viable environmental control technology to manage CO2.

These examples show how energy and the environment aren’t easily separated and how energy policy is a proxy for environmental policy, or vice versa, depending on your starting point.

In terms of the U.S. as a global leader, American energy policy can’t be conducted in isolation because of potential global environmental impacts.

We see clearly today that policies designed to regulate carbon emissions have generated conflicts involving politics, science, the energy industry, U.S. national interests, and America’s leadership role in the world.

Realities of political and global ideologies, as well as ever-changing political transitions, must be considered by U.S. lawmakers and the administration to avoid short-lived policies that only create more uncertainty for the U.S. energy producers and environment shepherds.

Where Mr. Trump’s cabinet nominees are on the issues and how malleable they may be in forging healthy compromises on energy and environmental policies is critical to determining where investment capital should be applied.

Energy vs. Environment: Where Trump’s Cabinet Picks Stand

Rick Perry, Mr. Trump’s nominee for Energy Secretary, while overseeing a massive expansion of oil and gas development during his tenure as governor of Texas from 2000 to 2015, also made the Lone Star State the country’s leading wind power developer.  Mr. Trump’s transition team noted Governor’s Perry’s push into alternative energy sources when his nomination was announced.

As far as climate change, at a 2011 event in New Hampshire, Governor Perry noted the world’s climate has been in flux “ever since the earth was formed.”

He’s been pegged as a climate change denier, saying, “There are a substantial number of scientists who have manipulated data so that they will have dollars rolling into their projects.”

Scott Pruitt, Oklahoma’s Attorney General and Mr. Trump’s nominee to head the Environmental Protection Agency, famously joined other state attorneys general in suing the Obama administration over the Clean Power Plan, a federal rule aimed at curbing carbon emissions from power plants, and joined a lawsuit to block an EPA rule on methane emissions.

In spite of Mr. Pruitt’s history of confrontation with the EPA and his detractors’ claims that he’s a climate change denier, his view of climate change may be more agnostic. He’s written that “Scientists continue to disagree about the degree and extent of global warming and its connection to the actions of mankind. That debate should be encouraged – in classrooms, public forums, and the halls of Congress.” Hopefully, Mr. Pruitt will lean towards the majority consensus of scientists as research continues.

Still, there’s no denying his distaste for the Agency he’s slated to head. “The American people are tired of seeing billions of dollars drained from our economy due to unnecessary EPA regulations, and I intend to run this agency in a way that fosters both responsible protection of the environment and freedom for American businesses,” Pruitt said after accepting the nomination. Citing “responsible protection of the environment” doesn’t comport with claims he’s a total climate change denier.

Montana’s sole Congressional House Representative, Ryan Zinke, President-elect Trump’s nominee to head the Interior Department, says of climate change, “It’s not a hoax, but it’s not proven science either. But you don’t dismantle America’s power and energy on a maybe. We need to be energy independent first. We need to do it better, which we can, but it is not a settled science.”

In Congress, Zinke backed the Land and Water Conservation Fund, a federal program that protects public lands and water, and last July resigned as a delegate to the Republican National Convention after the GOP’s platform called for the transfer of federal lands to the states.

“Most Republicans don’t agree with it and most Montanans don’t agree with it,” Zinke said at the time about giving states control over federal lands. “What we do agree on is better management.”

Zinke’s push for energy independence and his desire to shepherd America’s vast wilderness areas, our national parks and resources, means he’s going to be at odds with himself at times and sometimes on the other side of the energy and the environment debate.

Finally, Mr. Trump’s nominee as Secretary of State, Rex Tillerson, head of the world’s largest oil company, ExxonMobil, will weigh in heavily on the energy-environment debate, and not necessarily on the side you might think.

In a keynote speech at an energy conference earlier this year, Tillerson said the “risks of climate change are real and warrant serious action.”

Not long after that, ExxonMobil came out in support of the Paris climate agreement, an ambitious deal to curb global greenhouse gas emissions reached by 195 countries.

The company said of the Paris agreements, “ExxonMobil supports the work of the Paris signatories, acknowledges the ambitious goals of this agreement and believes the company has a constructive role to play in developing solutions.”

As Secretary of State, Tillerson would be a key player in international climate negotiations and some domestic energy projects, such as cross-border oil and gas pipelines.

The Best Way to Play Trump’s Energy Deregulation Agenda

From the outside, Mr. Trump’s calls for energy independence, his skepticism over climate change, and his cabinet nominees portend an upcoming energy deregulation push to achieve his campaign goals of creating jobs and reducing America’s reliance on outside oil.

But, as we’ve seen since his election, Mr. Trump’s hardline campaign promises are subject to the hardcore realities of domestic policies and international geopolitics. Nowhere are those two realities more clearly in focus and on the front-lines of the future than with energy and environmental policies.

To clear the way for energy growth and job creation across all aspects of energy production – from oil, gas, and coal to wind and solar – Mr. Trump and his cabinet are going to have to steer energy proponents and environmental proponents towards long-term compromises that satisfy, as best they can, both groups and the American people.

The only smart way to invest in whatever those compromises end up being is by investing in big energy producers with big dividend yields, as well as infrastructure plays.

When it comes to big producers, you can’t go wrong with the world’s biggest integrated oil companies like, ExxonMobil Corp. (NYSE:XOM), which yields 3.3% and BP plc (NYSE:BP), which yields a fantastic 6.5%.

As far as infrastructure plays, I like Valero Energy Partners (NYSE:VLP), the pipeline, transmission and storage master limited partnership that yields 3.75%.

Sincerely,

Shah

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